The other countries at the G20 summit apparently told Obama that they prefer to pursue deficit-cutting measures and not advocate stimulus funds to jump start their (the world) economy. Why, at this particular point in time, has this become such a big obsession (both here and abroad)? I’ve heard several arguments here that you should stimulate (heh) in a recession and work on the deficit once the economy is up and running.
I assume it’s because the Greek situation put the fear into the EU countries, and it’s also illogical to keep spending at the current rate in comparison to the deficit.
It seems like a no-brainer to me.
It’s bad economics and narrow self-interest masquerading as responsible governance. It’s the notion that the “responsible” thing to do is inflict pain on regular people to pay for the sins of finance run amok. It’s the unwillingness to let go of the pipe dream (held by Germany in particular) that they will shape up and run trade surpluses, and that they can count on their neighbors (America in particular) to continue running trade deficits even though private debt and unemployment are high. All they have to do is look at Ireland to see the folly of austerity, but they’ve already made their minds up.
This is why, I think. Keynesian spending is counterintuitive. Tightening your belt seems like the natural response to tough times so if you don’t use your brain to figure out why that’s a bad idea…
And even if you do the sad state of Economics is there to pick up the slack. There are plenty of tenured and respectable rightwingnuts who don’t believe stimulus is EVER a good idea. As Paul Krugman recently lamented, “It’s truly a new Dark Age, in which famous professors are reinventing errors refuted 70 years ago, and calling them insights.” Those voices were muted when we were staring at the abyss because they have no answers but now that we have moved back to the edge they are out again in full force.
Please note where I included the words “keep spending at the current rate” in my post. And it is not at clear to me that the stimulus spending at this point has equaled the cost to our bottom line.
And yet, Keyneian solutions have an exceptionally poor track record, and in fact require a government used to tight fiscal discipline to implement properly.
Stop right there. Krugman may have once been a bright economist, but he’s become a complete joke. The man is nothing more than a political economist who dresses up nonsense with economics, and changes his opinions with the Democrat’s talking points.
It’s understandable that the prospect of default in Europe has changed the EU position, but the USA is not as deeply in debt.
I think the Republicans are clever to hammer on this issue now, before the economy gets humming again. If we get to that point before the midterm elections, the Republicans will be much less successful.
The longer and worse the recession, the better off the conservatives are. As long as they are perceived to be out of power that is.
That’s why they are voting against extending jobless benefits. The calculation must run something like: “The number of voters outraged by losing their unemployment benefits is smaller than the number of people generally dissatisfied with the economy”.
The responsible thing to do IMO, would be to keep at the stimulus efforts a bit longer, and cut the deficit as the recovery becomes more solidly established.
Walt
Which opinions has he changed?
Where have you been for the last 30 years or so? Even when Grandpa Ron was President we had issues with deficit spending and the idea of cutting it.
You’re in no position to declare Paul Krugman to be a “complete joke.”
I get the sense that it’s at least in part a dog and pony show for the benefit of the bond markets & ratings agencies – trying to make them look the other way and agree not to notice how toxic sovereign debt has become.
From what I can see, two great fears are that (1) bond markets will demand higher interest rates for sovereign debt, making current budgets genuinely unsustainable, and (2) ratings agencies will either downgrade sovereign debt, or get caught with their pants down in a situation where they should have downgraded–in either event, banks will once again be afraid to lend to one another for fear of toxic hidden assets.
If the first situation comes about, you really do have a Greece situation on a much larger scale. If the latter situation gets to the point where banks won’t even honor each other’s letters of credit, you may have a genuine worldwide depression on your hands.
The phrase “political economist” does not mean what you seem to think it does. See political economy.
Can you explain how it would be good for the “regular people” for a country to default on its debt? Thanks.
Can you explain how fiscal austerity that results in lower GDP helps a country pay off its debt? Thanks.
That’s kind of a silly question, isn’t it? If tax revenues (flowing from GDP), are lowered by some annual amount that’s less than the reduction in expenditures, the debt will be lowered, won’t it? Also, if fiscal austeristy results in a stable credit rating, then the country may be able to roll over its debt at a lower rate of interest.
I think your implied question is “people will be hurting, how can that be good?” which may be a legitimate line of inquiry, just a different one.
As a Libertarian I look askance at Keynes’ theories, but to be honest, his ideas have never been properly implemented, at least on this side of the pond. Those who control the purse strings have been oh so willing to apply the spend your way out of bad times part, but reluctant to do the other half: Rein in on spending during the good times. Build up a rainy day fund, so to speak.
Do you think the United States is going to be running a budget surplus any time soon, regardless of the amount of spending we cut? Short of pulling out of Iraq and Afghanistan today, we’ll be running deficits for the foreseeable future.
Which isn’t necessarily the worst thing in the world. Why? Because debt has never been cheaper. Long-term treasury rates have been falling. The US doesn’t have a credit rating problem. It may have a deflation problem, though. It definitely has an unemployment problem. Cutting spending won’t help either.
If people were serious about cutting the deficit they’d be advocating for tax hikes. They aren’t, and they aren’t.
And I say, if they were truly serious, they’d cut spending. Politicians have far more to lose by cutting government payouts than they do by hiking taxes. “The Rich” are a popular whipping boy, but the real pain comes from getting rid of entitlements and the local Senator/Reps pet projects.
Leaving aside for now at least three highly questionable assumptions in your post here, a point of fact: you didn’t mention the United States in your snark. You just asked “Can you explain how fiscal austerity that results in lower GDP helps a country pay off its debt? Thanks.” Question answered: you’re welcome.